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Receivership

A “Receiver” is someone that is put in place to oversee everything that a company or corporation does. It is something that a court will require only in extreme circumstances, such as an indication of fraud or incompetence. In Texas, the procedure for having a receiver appointed are listed in Texas Business Corporations Act (Article 7.04-7.08) as well as Texas Civil Practices & Remedies Code 64.001-64.076. In general, a corporate receivership can last a maximum of 3 years unless there is an application for extension. In no event can a receivership exceed 8 years.

A receivership is generally considered a very extreme remedy. When a court can accomplish whatever needs to be done by a less extreme remedy then a court will order the less extreme remedy and not order a receivership. Frequently the types of situations where a receivership is necessary or advisable involves the sort of corporate fraud or incompetence that often leads to “Piercing the Corporate Veil” or holding corporate officers personally responsible for their actions on behalf of the company.

A corporate shareholder may ask the court to appoint a receiver to rehabilitate the corporation. These shareholder lawsuits are known as “derivative litigation“. In derivative litigation a shareholder sues the corporate officers in the name of the corporation. In order to qualify for a “rehabilitative receiver” every other remedy must not be sufficient. The situations that might permit appointment of a receiver are insolvency or an imminent danger of insolvency, some sort of deadlock in the management that threatens irreparable injury to the corporation, evidence of illegal or oppressive management, some sort of waste or neglect of the assets of the company or a deadlock in shareholder voting that has existed for at least two years.

Also, creditors may ask the court to appoint a receiver to revive the corporation when the corporation is insolvent and either the creditor currently possesses an unsatisfied judgment against the company or the company has actually admitted, in writing, that the creditor is owed money. Appointment of a receiver is a drastic remedy and a court will not order it simply because a shareholder is dissatisfied with the management of a corporation.

If it is not possible to solve the problems of the corporation within twelve months of the appointment of a receiver than a shareholder can ask the court for an order that the corporation be liquidated. In these circumstances, liquidation requires that all debts, obligations and liabilities are discharged. This includes all claims that are asserted against the corporation in any pending lawsuits.

Generally, a dissolved corporation will continue the corporate existence for three years from the date of dissolution. There are circumstances that allow a dissolved corporation to reduce the statute of limitations period for claims against the corporation in certain circumstances.